2014 (10) TMI 734 - AT - Income Tax

Advances written off disallowed Held that - While AO has disallowed the amount for the reason that they are not in the nature of advance, CIT(A) has sustained the assessee s claim n the ground that no evidence has been produced by assessee to substantiate that party has refused to repay advance given by assessee and further the said party has refused to supply the pouches for their changed design - So far as the rent deposits are concerned, CIT(A) sustained the disallowance by simply observing that assessee has failed to produce any evidence that landlords have refused to repay the deposits - the conclusion drawn by AO as well as CIT(A) are not correct as it is not in accordance with the statutory provision - As per Section 36(1)(vii) if the debt becomes bad and had actually been written off in the books of account, then, it is to be allowed as a deduction - the amount has been written off in the books of account of assessee - deduction claimed cannot be disallowed only on the reason that assessee has not proved that the persons concerned have refused to make payment to assessee the addition is to be set aside Decided in favour of assessee. Nature of expenses towards payment of preemption charges to VSNL for surrender of transponders disallowed Held that - Assessee has taken on lease from VSNL 5 numbers of transponders for telecasting its programmes in the channels - the preemption charges of ₹ 4,70,27,466 equivalent to US 10,33,000 was towards premature termination of lease in respect of two transponders of VSNL, which were used by assessee as assets of its business - the expenditure incurred by assessee being connected with an asset which is used as a tool for carrying on the business of assessee, certainly, in the nature of capital expenditure relying upon Aztec Software and Technology Services Ltd. Vs. ACIT 2007 (7) TMI 50 - ITAT BANGALORE - the expenditure incurred is connected to apparatus with which assessee carried on its business, the nature of expenditure is also capital thus, the order of the CIT(A) is upheld Decided against assessee. Depreciation on computer peripherals @ 60% - Held that - CIT (A) has restricted the depreciation to 25% on modems, switches, routers, printers, scanners etc by treating them as plant and machinery as decided in assessee s own case for the earlier assessment year, it has been held that the revenue authorities have not disputed the fact that the items on which the assessee has claimed depreciation at the rate of 60% by treating them as computer are being used as input or output device of the computers - relying upon DCIT vs. Datacraft India Limited 2010 (7) TMI 642 - ITAT, MUMBAI - any device when they are used along with computer and when their functions are integrated with the computer comes within the ambit of the expression computer - depreciation at the rate of 60% by treating the screen, key board, mouse, UPS, net working, router as part of the computer system and thereby eligible for depreciation at the rate of 60% as available to computer thus, the contention of the assessee is accepted that it is entitled to avail depreciation at the rate of 60% on those items as is applicable to computer thus, the AO is directed to allow depreciation @ 60% as claimed by assessee Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of advances written off.
2. Disallowance of deduction claimed towards payment of preemption charges.
3. Disallowance of depreciation claimed on certain equipment.

Detailed Analysis:

1. Disallowance of Advances Written Off:
The assessee, a company engaged in various businesses, filed its return of income declaring 'Nil' income after setting off unabsorbed depreciation. During the assessment, the AO noticed that the assessee debited an amount towards bad debts and advances written off, which included Rs. 5,49,500. The AO disallowed this amount, and the CIT(A) sustained the disallowance on the grounds that the assessee failed to produce evidence that the parties refused to repay the advances.

The Tribunal found that the disallowance was incorrect as per Section 36(1)(vii) of the Act, which allows deduction if the debt becomes bad and is written off in the books of account. The Tribunal deleted the addition made by the AO, stating that the deduction cannot be disallowed merely because the assessee could not prove that the parties refused to make payment.

2. Disallowance of Deduction Claimed Towards Payment of Preemption Charges:
The assessee claimed a deduction for preemption charges paid to VSNL for surrendering transponders. The AO disallowed the expenditure, stating it did not relate to the assessment year under consideration. The CIT(A) sustained the disallowance, treating the payment as a capital expenditure.

The Tribunal upheld the CIT(A)'s decision, stating that the preemption charges were paid for premature termination of the lease agreement, which is connected to an asset used as a tool for carrying on the business. The Tribunal referred to the Special Bench decision in Aztec Software and Technology Services Ltd. Vs. ACIT, which held that such payments are capital expenditures. The Tribunal found no reason to interfere with the CIT(A)'s order.

3. Disallowance of Depreciation Claimed on Certain Equipment:
The assessee claimed depreciation at 60% on items like printers, scanners, modems, etc., treating them as part of the computer block. The AO restricted the depreciation to 25%, treating these items as plant and machinery. The CIT(A) sustained the AO's decision.

The Tribunal found that the issue was covered by its earlier decisions in the assessee's own case for previous assessment years. The Tribunal referred to the Special Bench decision in DCIT vs. Datacraft India Limited, which held that peripheral devices used along with computers and integrated with their functions should be treated as part of the computer and eligible for higher depreciation. The Tribunal directed the AO to allow depreciation at 60% as claimed by the assessee.

Conclusion:
The assessee's appeal was partly allowed. The Tribunal deleted the disallowance of advances written off, upheld the disallowance of preemption charges as capital expenditure, and directed the AO to allow depreciation at 60% on peripheral devices used with computers.